Weak demand weighs on cement prices: Emkay

Emkay Global Financial Services has come out with its report on cement space. The research firm remains positive on Grasim, Shree Cements and Madras Cements.

• All India prices at Rs289/bag, -3.4% mom, decline led by sluggish oftake due to festive season– Weaker than estimated demand scenario results in a steeper fall
• Central & Northern regions witness steep decline in prices of -5.5% & -5.3% respectively followed by East -3.7% and West - 2.6%.Prices in the southern region remained flat vs expectation of further bounceback in AP
• However cyclone Nilam impacted Andhra Pradesh demand restricting bounce back of prices ; strike in Kerela by the dealer association disrupts the demand scenario in the region
• Demand now remains a key driver as it has finally started weighing down on prices & any hikes expected in Dec & Jan would have to be supported by a healthy demand growth
• Prefer ACC as steep valuations leave little room for further out-performance for Ambuja & Ultratech. Remain positive on Grasim, Shree Cements and Madras Cements

All India prices decline led by sluggish offtake in festive season– However weaker than estimated demand results in a steeper fall of -3.4% mom:

Our Channel check inNovember-2012 suggests that cement prices across India have softened led by poor demand owing to slowdown in construction activities due to festive season. However dealers in most regions have pointed out that even though oftake during the festive period was expected to be sluggish, it has been weaker than expected and has resulted in a steeper fall in cement prices across regions. Central and Northern regions witness steep fall in prices of -5.5% and -5.3% respectively followed by East (-3.7%) and West (-2.6%). The only exception to this is the southern region where prices have remained stable. However the disappointment down south is from Andhra Pradesh where prices had started bouncing back in October (post savage cuts in the month of September) with further hikes expected in November pulling back the prices to July- August’12 levels. However the disruption in construction activities due the coastal areas being hit by cyclone Nilam and the continued electricity shortage issues in the state have arrested this bounce back. Additionally dispatches in Kerela were impacted as the activity in the region was completely sabotaged for nearly 12 days led by a strike by Kerala cement dealers association protesting government's decision to put cement on notified goods list.

Overall we believe that demand now remains a key driver as it has finally started weighing down on price levels and any hikes expected in the month of December and January would have to be supported by a healthy revival in cement demand growth.

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